Demystifying discretionary medical indemnity cover: Just how covered are you?

Time to read: 6-min read

 The world of medical indemnity insurance is a complicated place and it can be easy to get bogged down with all the complex terminology.

From occurrence-based to claims-made to Extended Reporting Periods (ERP) /run-off cover, there are a number of different aspects to consider when taking out medical indemnity insurance, so understanding which option is right for you can be difficult.

One of the biggest decisions you’ll need to make when choosing is whether to take out discretionary indemnity or a contractual indemnity insurance policy.

Understanding the differences between the two could not only ensure you find the peace of mind you're looking for, but it could also save your career. Put simply, without the correct type of medical indemnity in place, you may not be covered against alleged medical negligence in the way you think you are.

With this in mind, join us as we break down both discretionary and contractual indemnity in more detail, providing you with all you need to know to make a more informed decision.

What is discretionary indemnity?

Discretionary indemnity cover is a form of medical indemnity typically provided by Medical Defence Organisations (MDOs).

Operated on a ‘discretionary’ basis, this effectively means that it is purely up to the MDO whether you receive any help or financial support should a claim ever be made against you.

Under discretionary cover, the MDO assesses each claim on a case-by-case basis. Unlike insurance products, the MDO’s do not have policy wordings, so any decisions they make is at their discretion and will only be made at the point you request assistance.

What is contractual indemnity?

On the other hand, contractual indemnity operates under a contractual agreement between you and your insurance provider, offering specific coverage based on the terms and conditions outlined in the insurance policy you take out with them.

Contractual indemnity is a legally-binding contract that provides you with support and financial assistance should a claim or complaint ever be made against you that relates to the specific terms of your policy. 

Regulated by the Financial Conduct Authority (FCA), contractual indemnity also requires insurers to treat all policyholders fairly, disclose their financial position when required, and hold sufficient financial reserves to support claims when needed. These regulations don’t exist for MDO’s who offer discretionary indemnity.

Why is discretionary indemnity still available?

Since contractual indemnity holds so many advantages over discretionary indemnity, you may find yourself wondering why discretionary indemnity still exists at all. This is a good question and one that has been regularly discussed in the world of insurance.

Organisations that offer discretionary indemnity suggest that this type of indemnity provides added flexibility, allowing protection to go further than contractual indemnity could, while also potentially avoiding any gaps or grey areas within insurance policies.

However, while this may be seen as an advantage to MDOs, having this so-called ‘flexibility’ can also work against MDO members, as highlighted during 2020’s Hussain vs. Medical Defence Union & Anor legal case.

During this case, a General Surgeon had all legal assistance withdrawn by the MDU midway through the claim process due to inaccuracies in their income declarations. This, therefore, proved that even if an MDO agrees to support you with a claim, having discretionary indemnity in place can still leave you vulnerable to them withdrawing their support at any point.

What’s more, discretionary indemnity providers also operate outside of the remit of the FCA, allowing them to avoid regulatory oversight and any of the associated costs that go with that. Hence, there is no resource if you do not agree with the MDO’s decision to exercise discretion. In addition, there is no protection from the Financial Services Compensation Scheme (FSCS), should the MDO have insufficient capital to meet claims.

To find out more about taking out medical indemnity insurance as a doctor, our comprehensive medical indemnity guide should have all the information and answers you need.

Concerns about the current model of medical indemnity

Recognising the need for reform, the Department of Health and Social Care (DHSC) released a survey back in September 2022, looking to gather insights and opinions from healthcare professionals on ‘appropriate clinical negligence cover’.

In essence, they wanted to address concerns surrounding the stability of the current model of indemnity.

This followed on from the publication of a DHSC paper which raised four main concerns surrounding discretionary indemnity cover:

1. Discretionary indemnity providers have no contractual obligation to meet the cost of any claim.
2. Discretionary indemnity providers have no legal obligation to ensure they have the reserves to cover the cost of claims.
3. Discretionary indemnity providers don’t have to disclose their full financial position, leaving many healthcare professionals unaware of the extent of their financial cover.
4. Discretionary Indemnity providers aren’t subject to regulation on financial conduct, leaving healthcare professionals at risk of unfair treatment.

Ultimately, recent publications and movements from the DHSC appear to outline the government’s concern that the market may not only fail to provide patients with appropriate compensation but also leave practitioners liable for the costs of claims made against them.

You can find out more about the DHSC’s survey and our predictions on how it will impact the medical insurance industry in our recent blog.

The benefits of contractual indemnity

Contrary to the ‘flexibility’ claims that MDOs make in favour of discretionary indemnity, modern contractual indemnity policies offer broad coverage without comprising on clarity.

Regulated insurance companies are legally required to be completely transparent about any exclusions or warranties that appear in policy wording that might affect your coverage. 

In other words, contractual indemnity policies have to be clear in how they communicate their terms and conditions, to ensure that you are as well informed as possible.

Contractual indemnity policies can also be underwritten based on individual risk assessments, allowing them to be personalised to your specific circumstances. This is incredibly important in the world of healthcare and can be especially valuable to any medical professionals that have high-risk specialities, such as surgeons.

In contrast, an MDO known as the MDU decided to withdraw support for spinal surgeons in private hospitals back in 2017. This then led to concerns among the medical community that MDOs could cherry-pick the types of specialities that discretionary indemnity would actually cover, leaving many feeling vulnerable.

Switching from discretionary indemnity to contractual indemnity

If you’re currently covered by a discretionary indemnity arrangement, don’t worry – it’s not too late to switch to a contractual indemnity policy instead.

At Howden Medical Indemnity, we can provide contractual indemnity policies that include unlimited retroactive cover, allowing you to stay protected while you make the switch to a new insurance policy that you can trust.

Switching to an insurance-backed arrangement will also provide you with an added safety net, protecting you against future claims being rejected by your MDO.

What’s more, thanks to the automatic 21-year run-off cover, the modern contractual indemnity policies that we offer can also provide you with protection against future claims long after you decide to retire.

Discover medical indemnity insurance you can trust

Don’t compromise on your indemnity – choose a provider that you can rely on.

Here at Howden Medical Indemnity, we take great pride in delivering contractual and FCA-regulated indemnity, offering competitive premiums and fully customisable policies. 

To find out more information about us or the indemnity policies we can provide, simply give our team a call at 020 7623 3806 or submit a medical indemnity query and we’d be more than happy to answer your questions.